Resource Market Weekly Recap – Apr 8, 2010

- April 8th, 2010

Following the upward trend of vanadium prices, the price for iron ore fines has also improved. Despite a depressed steel market, a notable recovery is evident in the vanadium market since the year end, with prices reacting to positive market demand.

By Dave Brown-Exclusive to Resource Investing News

Diamond Investing NewsDespite a depressed steel market, a notable recovery is evident in the vanadium market since the year end, with prices reacting to positive market demand.

Sales throughout the industry are up, fueled largely in part by Asia’s growing lust for the jewels, however, as new mines are coming online in the near future, the government of Quebec is raising taxes on mining companies for the first time in 15 years, mostly due to the government’s C$4.5 billion budget deficit.

Stornoway Diamond Corporation (TSX:SWY) has released a very positive outlook for its Renard Project in Quebec. The mine, originally thought to have a life of seven years, is much larger than expected and may produce for up to 25 years, a substantial increase from an earlier estimated  lifespan. A higher processing capacity supported by a bigger overall project would reduce operating cost per tonne by as much as 22 percent.

Harry Winston Diamond Corporation (TSX:HW) reported a massive $73.2 million loss in 2009, as compared with an over $70 million profit from the year before. The losses, mainly attributed to the economic downturn, did see a 13 percent rise in Q4 sales in 2009; a good sign for things to come in 2010. “The outlook for the diamond market for fiscal 2011 is positive, with evidence of increased consumer demand in the Far East and India, coupled with the reawakening of the US retail sector, providing the basis for continued expected price growth in rough diamonds,” noted a Harry Winston Diamond Corporation fiscal report for 2010.

Lithium Investing News

Last week, the Obama administration officially set tougher fuel efficiency standards for all new cars and trucks to be manufactured between 2012 and 2016. Lithium investors and many automaker stakeholders welcome the uniformity of national standards, although the application of these standards are expected to raise the cost of vehicle production an estimated $434 per vehicle in 2012, and escalating to $926 per vehicle in 2016.  The first ever regulation by the Environmental Protection Agency on greenhouse gas emissions by vehicles along with the National Highway Traffic Safety Administration insist that despite higher costs for vehicles, consumers will save more than $3,000 in fuel over the life of the vehicle due to the increased fuel efficiency.

A bullish report from Lux Research has suggested the market for batteries, supercapacitors and fuel cells targeting transportation and smart grid applications will more than double from $21.4 billion in 2010 to $44.4 billion in 2015.  A critical takeaway from the report is the forecast that electric vehicle storage technology markets will nearly double with a compound annual growth rate (CAGR) of 13.5 percent over five years.  Electronic bike (e-bike) and scooter battery markets represent the highest growth, increasing from $6.4 billion this year to $10.9 billion in 2015, a CAGR of 11 percent.

On April 2, at the 2010 New York Auto Show, Hyundai (KSE: 005380) unveiled its brand new 2011 Sonata Hybrid Bluedrive. The new model represents Hyundai’s first hybrid and includes a number of bold technological innovations such as a set of next generation lithium polymer batteries. The lithium polymer batteries are superior for vehicle applications due to their durability and higher power density than even lithium-ion batteries, and are already common in portable consumer electronics.

Moly Investing News

Over the last year, the steel market has seen its share of volatility. Major iron ore companies such as BHP Biliton, Vale, and Rio Tinto are looking to capitalize on rebounding steel demand in the wake of the global economic downturn. Most of the growth is coming from China, the world’s largest steel manufacturer, lowering their overall production cost by vertically integrating all of the means of producing steel. The major iron ore companies are too big to buy out, or to influence any direct control over.

The control of the molybdenum market is the next logical step for China. A recent report on China Molybdenum Co Ltd. (HKG: 3993) shows the power that the nation has over the world market. “Overall molybdenum inventory in China now exceeds 45,000 mt, accounting for 22 percent of the world’s total molybdenum inventory,” according to a report from Steel Orbis.

With increased demand for molybdenum, and increasing prices, moly miners stand to benefit. The Chinese firm, Sichuan Halong Group, has agreed to purchase a 25 percent equity stake in General Moly (AMEX: GMO) for $80 million and to secure other funding to help finance a Nevada molybdenum mine. Moly Mines (TSX: MOL) also received $140 million from the same Chinese group which is already a 51 percent shareholder. The additional funding is for the development of Moly Mines’ Spinifex Ridge Molybdenum project. Stock price for the company is up from 0.24, a 300 percent gain from a year ago.

Thompson Creek Metals (NYSE: TC) has announced that it is seeking $1 billion for new acquisitions to expand output in response to growing demand. The company, which operates two North American mines, is seeking new opportunities in South America and Australia.

Nickel Investing News

Nickel prices are up 34.9 percent over the first quarter and with expectations of stronger demand from stainless steel mills, some analysts believe this trend will continue.  The stainless steel industry accounts for about two-thirds of global nickel demand and LME nickel inventories hit a record high with over 166,000 tonnes in early February.  A series of strikes, project delays and production problems have hurt nickel production and inventories have since dropped by about 6 percent to the lowest levels since late-2009. This year, demand is expected to exceed production for the first time in four years, sending the nickel market into deficit.

BMO Capital Markets Global Commodity Strategist Bart Melek expects nickel prices to firm up as these supply and demand fundamentals continue to improve.  The analyst is anticipating a fairly large deficit of 36,000 tonnes this year, partly due to delays at Vale’s (NYSE: VALE) Goro nickel project in New Caledonia and the ongoing strike at the Vale Inco operations in Sudbury.  Vale has recently reached an agreement with white-collar employees at their Sudbury operations, however three thousand mine workers are still facing a labour impasse. The announcement drew anger from the strikers, but signals the company’s desire to cash in on the current prices.

Daniel Rohr, a senior analyst covering mining with Morningstar, recognizes nickel prices are climbing again, but believes changes within the nickel industry are likely to prevent prices from soaring to the lofty $50,000 per tonne range of March, 2007.  A shift toward lower-nickel-content stainless steel will have a significant impact on long-term nickel demand with lower-nickel-content stainless steel taking up more of the market share, but the emergence of nickel pig iron, produced from low-grade nickel ore, has introduced a new dynamic to the industry. Nickel pig iron production costs are high, but make sense when nickel prices are strong so nickel pig iron acts “as a pressure release valve when nickel demand and prices are high.”

Vanadium Investing News

South Africa’s second-largest steel producer, Highveld Steel and Vanadium (OTC:HGVLY), a subsidiary of the Russian mining and steel producer Evraz Group (LON:EVR), reported a sharp drop in profits for 2009.  Looking ahead, the company sees the South African steel market as volatile. Despite some recovery in prices and increased shipment volume, rising energy and raw material costs threaten to eat into what little growth there is. Now the company is looking to revenue from its vanadium sales to increase profit margins in 2010.

“Following the upward trend of vanadium prices, the price for iron ore fines has also improved. Despite a depressed steel market, a notable recovery is evident in the vanadium market since the year end, with prices reacting to positive market demand,” Highveld said.

NiPlats Australia (ASX:NIP) which operates in the East Kimberley region of Western Australia, has seen a number of new developments which have garnered the attention of vanadium investors. Recently the company announced a 400 percent increase of the vanadium deposit at their Speewah location, confirming it as Australia’s largest vanadium deposit. The Speewah vanadium deposit is estimated at 3.2 billion tonnes at 0.30 percent V2O5, 2 percent Ti and 14.8 percent Fe.

The company has produced a very high grade or tenor magnetite concentrate which should offer competitive cost advantages in the downstream processing. The company says some of the high-tenor magnetite are at concentrates significantly higher than reported by similar Australian projects.

American Creek Resources Ltd. (TSX-V:AMK) has released the metallurgical testing of drill core composites at their Quesnel Trough location in British Columbia.  Although this project is still in the earliest stages of exploration, the company says that the seven-hole drill program confirmed significant magnetite mineralization at depth.

With help from Assistant Editor Vivien Diniz

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